From buying a new vacuum cleaner to eating out in a restaurant, products and services represent the cumulative efforts of a supply chain. Only recently have business owners begun to understand the importance of supply chain management in making their businesses more efficient and cost-effective.
Rather than being under the management of one business, supply chains have become more about the relationship between companies that work together to provide the end product or service. The vacuum cleaner represents the efforts of raw material suppliers, manufacturers, marketing people, and wholesale and retail distribution to name a few. In terms of the restaurant meal, it involves growers, suppliers, chefs, servers, and marketing people who promote the restaurant business as a place where you want to dine.
Supply chains involve these basic components:
- Planning: A business plan, research, development, and anything else involved in creating a product or service is part of planning.
- Purchasing: Generally you have to procure raw materials from suppliers in order to create the product or perform the service.
- Manufacturing: This is the process where you make the product or perform the service that you want to sell to your potential customers.
- Marketing: This is the process of selling your product or service to the buying public.
- Distribution: You need to determine how to get the product or service from your business to the customer.
From planning to distribution, each of these processes is important to the success of the supply chain and ultimately your business. Planning gives you organization, purchasing supplies you with the raw materials to make your product, manufacturing assembles the product, marketing sells it, and distribution ensures that it gets to your customer.
Besides being essential to the overall supply chain, each process should also work in conjunction with the others to create overall continuity. Supply chain management focuses on getting the whole chain to operate at its optimum. Without supply chain management, chains risk being disjointed and ineffective in their operation.
Supply chain management deals with three types of flow:
- Physical flow: Goods flow through the sequence of manufacturing, movement, and storage. Customer service, product returns, and the management of any waste byproducts that result from the manufacturing process are also examples of physical flow.
- Information flow: Coordinating the efforts of various supply chain partners and making sure that each partner communicates with the other partners, such as manufacturing letting suppliers know in advance when they are going to need more raw materials, is information flow. This also includes defining and specifying the role and relationship of each partner in the supply chain.
- Financial flow: Pricing, payment schedules, and credit terms for making timely payments to partners in the supply chain is financial flow.
Recently supply chain management has moved toward making operations greener by creating less waste and recycling and reusing the waste still being created. For more information on green supply chains, read Make Your Manufacturing Supply Chain Greener.